ASIA: Vulnerable Taiwan facing new trade challenges

Typhoon Morakot, which lashed Taiwan in early August, illustrates just how vulnerable this small island is to natural disasters, quite apart from its challenging political environment.

Typhoon Morakot's toll came to over 600 killed and missing, Taiwan's deadliest natural disaster since the 1999 earthquake, in which more than 2,000 people perished. Morakot dumped a year's worth of rain - over 2,500 millimetres - in just three days. In Siaolin village alone, in southern Taiwan, over 400 residents - still officially posted as missing - were buried alive or torn to pieces by a massive landslide.

This disaster also demonstrates Taiwan's prickly sense of pride and its precarious political position. Initially, President Ma Ying-jeou's administration, acting on bureaucratic advice, rejected offers of help from other countries, because it was too proud to accept charity and the resulting loss of face. This caused a political storm to match Morakot, as Taiwan simply doesn't have the resources to cope with a disaster of this magnitude.

This disaster-prone island now has a population of over 23 million, or more than the total population of Australia, shoe-horned into an area half the size of Tasmania. Most of Taiwan is mountainous, with its western plain its only fertile agricultural area. Apart from the skill and energy of its people, Taiwan has few other resources, meaning it must trade to survive and prosper.

The island has been hard hit by the global financial crisis, with trade slumping drastically and unemployment hitting an all-time high of 6 per cent.

President Ma, elected to revive Taiwan's economy, was seen as a clean alternative to the scandal-plagued administration of Chen Shui-bian, Taiwan's first opposition candidate to be elected to the nation's highest office.

Despite his manifest inadequacies, many felt sorry for Chen, because many of his troubles derived from his wife, who was popularly known as "the person more powerful than the president". In one memorable episode, she started a feud with one of the island's wealthiest families because they gave her a $25,000 watch, which she dismissed as "cheap junk".

President Ma's election platform rested on deepening Taiwan's engagement with its giant neighbour, communist China. Even before Ma took office, and in the face of efforts by Chen to restrict the development of economic ties with China, Taiwan's entrepreneurial businessmen had invested over $100 billion in mainland China. Some one million people from Taiwan are resident in China. Most of the budget manufactured goods that China exports to the world to fund its economic development are made in factories owned or managed by businessmen from Taiwan.

As Taiwan refuses to recognise Beijing's sovereignty over the self-governing island, Taipei is effectively isolated from official diplomatic links with the international community. Now, only 23 nations officially recognise Taiwan. With the exception of the Vatican, most are small impoverished nations in Latin America, the Pacific and Africa.

The constant diplomatic warfare between Taipei and Beijing aimed at stealing each other's allies has abated under Ma. Taiwan's recent admission to the World Health Organization is a sign of Beijing's new-found goodwill towards the democratic island.

Taiwan is now negotiating a free trade agreement (FTA) with China, which would boost Chinese investment and promote trade. Already, tens of thousands of mainland visitors are flooding into Taiwan, kick-starting the moribund tourism industry.

Taiwan is counting on China's market opening to overcome the effect of the ASEAN + 1 FTA between Southeast Asia and China, which could effectively shut Taiwan out of much of many Asian markets. This could become much worse with the establishment of the ASEAN + 3 pact, which would broaden the free trade agreement to take in Japan and South Korea, both major markets for Taiwan. Many nations are reluctant to strike trade deals with Taiwan for fear of antagonising China.

China still has 1,500 missiles targeting Taiwan, and Ma has noted that this makes the people of Taiwan wary of China's ultimate intentions.

China still maintains that Taiwan is an integral part of the People's Republic. According to The Economist, the London-based news magazine which has good sources in Taiwan, "Many Taiwanese, including the pro-independence opposition party, fear the proposed accord is really a ploy by China to bring about reunification by stealth. They also argue that once the pact is signed, there is no guarantee that China will not lean on members of other FTAs to keep Taiwan out anyway. In contrast, Ma insists that the proposed pact would make it easier for Taiwan to sign free-trade accords with third parties." (The Economist, August 6, 2009.)

Taiwan must trade to survive, and if it is shut out of its Asian markets, it would be a calamity for its export-oriented manufacturing sector. Taiwan has been described as the world's successful economy in the globalised marketplace.

Official sources say that in future Taiwan and China may be like Scotland and England: economically united but politically separate. Not a very happy analogy, one might think.